MADRID — Europe’s highest court ruled on Wednesday that customers of banks in Spain can reclaim billions of euros because lenders did not pass on savings from interest rate cuts on variable-rate mortgages, sending shares in several of the country’s top lenders crashing.
The ruling centered on the use of a “floor clause” in Spanish mortgage contracts during the aftermath of the global financial crisis. Such agreements meant that the interest rate on an adjustable-rate mortgage was always held above a predetermined level, regardless of how low central bank rates fell.
Spain’s lenders began to use the clauses in 2009, after the global financial crisis pushed central banks around the world to slash interest rates. That helped preserve bank profit margins but failed to pass rate cuts on to customers beyond a certain level.
In 2013, Spain’s supreme court ruled that such deals were illegal, in part because the country’s banks did not adequately explain them to customers. The court did not, however, penalize lenders retroactively.
The European Court of Justice on Wednesday confirmed that the agreements were illegal, but went further by ruling that customers could claim reimbursement, without any time limit, for all payments made at a rate that was judged to be too high.
The decision, which cannot be appealed, means Spain’s banks could have to return 4.5 billion euros, or about $4.68 billion, to customers, according to Afi, a Spanish financial consultancy.
The ruling, which came as a surprise because it went against the opinion issued earlier this year by the court’s main adviser, sent bank stocks tumbling, with some falling as much as 10 percent.
BBVA, one of Spain’s largest banks, said that it expected the ruling would reduce its profits by about €404 million as a result of further provisions it would have to make. Another bank, Bankia, said its mortgage reimbursement claims could reach as much as €200 million, though it has already made provisions for about half that amount.
Other lenders, like Banco Santander and Bankinter, were not as exposed to the ruling because they either did not use “floor clauses” or had already made provisions against possible reimbursement costs.
“This ruling really wasn’t expected and comes with full retroactivity, which explains the very negative market reaction,” said Miguel Jiménez, a fund manager at Renta 4, a Spanish brokerage and asset management firm. “We’re not talking about banks facing major losses or solvency problems but certainly significant provisioning in some cases.”
Spain’s banks were able to make hefty profits in the lead-up to the financial crisis because of a construction boom in the country. But during that time, lenders also set upper and lower limits on mortgage payments.
After peaking in 2008 at over 5 percent, the Euribor rate — an interbank lending rate that is the figure typically used by European banks to determine the financing costs of home loans — began to fall sharply in 2009.
That reduced borrowing costs for customers, but Spain’s banks began to use the “floor clauses” to continue charging customers more than the market interest rate. Homeowners then started challenging the terms of their mortgage contracts as abusive, eventually taking the issue to the courts.
